Ethereum Falls Below $100 While Network Usage Remains Stable

By December 6, 2018Ethereum
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Ethereum’s price has fallen below $100 and has stayed at circa $98 at the time of writing for the first time since the beginning of May 2017 when it first reached the same price level.

Another day of red greets the crypto space with most down 5%-10%. BCH is bearing the brunt, while BSV stands out as the only green crypto in the top 50 (minus stablecoins obviously).

Trading volumes are considerable for eth at $2.2 billion while it appears to be on the brink of falling below a market cap of $10 billion for the first time since it gained it.

Some of this selling pressure might be due to eth longs closing, meaning speculators on margins who bought eth have to now sell it to give it back to those they borrowed it from to increase their bet levels and risks.

It appears these bulls got a bit exuberant starting in April 2018. Longs rose from ◊60,000 eth to an incredible ◊500,000, or circa 0.5% of all supply.

Now they’re down to about ◊300,000, circa the same level as shorts which have been rising since November from about ◊100,000 to now near ◊300,000.

Traders trading while trying to play 2D, 3D and 70D chess, might be one explanation, but it might be more probable that there’s currently not enough demand to meet new supply.

Interestingly, network usage has remained stable now for months. Meaning that people are not leaving or perhaps more correctly meaning that there’s a certain amount of people that find a certain amount of utility which has remained stable.

So eth has found a floor there, or so it seems, but for price it is somewhat different as you need new entrants or new funds at a level above new circulating supply.

The divergence between ethereum’s price and its network usage is at the highest level it has ever been, with the gap continuing to increase recently.

As can be seen, network usage has fallen, mirroring the price or the price mirroring the fall in network usage. The latter then has remained stable, but due to eth’s currently very high 7% yearly inflation, stability in network usage seemingly means a continued fall in price.

Network usage needs to rise for eth’s price to remain stable or to rise. Whether it does or not rise may depend on utility, but also investor’s judgment on whether the current price does or does not price in the potential future growth in network usage, and thus price.

Pricing in, however, as a true reflection of what the price should be, is an economic theory that doesn’t persuade us in as far as their claim that the market is rational thus the current price reflects the future potential.

In the abstract, maybe, but practically knowledge is not spread evenly. There may be a certain amount of people that know for example eth’s new supply will be reduced by 33% next month, but presumably their amount of funds is limited.

Thus, they can’t quite price it in and even if they could, the calculation is difficult and dependent on probabilities since the future isn’t predictable for certain.

So we’ll have to wait and see what happens when the new supply is reduced, but again there’s the question of demand. That new demand could fall. If it remains constant, then price might fall by less or may even rise. If demand rises at the same time and does so above the level of new supply, then obviously you’d expect a price rise.

Meaning we have no clue except that there are ways of valuing ethereum, but naturally only through calculated bets as price can’t be known for sure.

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